Was I alone in chuckling at the irony of recent headlines that PPI claim settlements are boosting the economy as the recipients blow their windfall on new TVs? How shameful it is that we have proven insurance to be a rip-off, but spending a virtue.
For the Treasury, reviving the economy must be the priority, and consumer spending is the fastest way to do that. So the banks’ payouts are a real help, unless they are salted away for a rainy day. For saving and insurance are much slower burn economic saviours, and too much of them can stall economic growth, as the Japanese have learned these last dozen years. Of course for individuals who fail to protect and save, the personal long term outlook is disastrous no matter the economic growth rate, and in a balanced society and market you’d have government encouraging spending and those businesses who profit from savings and insurance telling people to behave sensibly. The balance of messages might lead to better behaviours, though not so many of them as to stall any bounce in the economy.
But there are no messages being promoted urging people to save for a pension, or protect themselves against disability. All the messages are that the best thing to do if you have been financially responsible is to cancel whatever plan resulted and make a claim for compensation. Totally irresponsible marketing flourishes on the negative side of financial services but on the responsible side there is no marketing at all, apart from Parky and the Over 50s.
No-one claims this is good for society, but neither is there is any consequent drive to develop product and marketing to change things. In the world of pension savings there is general paralysis pending auto-enrolment; in the world of protection the most sold policy has been proven a fraud and all others tarred with the same brush so less cover is sold each year. Of course individual advisers can overcome all that face-to-face, but regulation has created a world shorn of financial advisers able to advise ordinary people.
So Government has begun to address the question of how ordinary people will make the right financial decisions. They have created a template for simplified products that must sell themselves and deployed the Money Advice Service to help. The MAS has proudly referred 3000 people to financial advisers (the same number my business advises a week at no cost to anyone else), but just 1.1m people have visited the MAS website in 2011/12, so it’s clear that it is not yet any sort of solution, as to be one it would need to be that number visiting each week.
In short the Treasury, having allowed the FSA to dismantle financial advice, has begun to provide (at phenomenal expense per user) a national financial health service. That expense is caused by self-service not yet being so in vogue that consumers are doing it for themselves in the making of prudent financial plans. This means MAS and simplified products must fail unless the Treasury delivers a joined up communications plan that either encourages private enterprise to tell people to wake up and look after their finances, or does so as a national campaign.
Either way might avert the longer term economic nightmare that is a land without savings or insurance, but currently we have only the PR heavy and results light spin of Government and quango spokespeople. Isn’t it time the Treasury built a proper business plan to get the nation doing the right financial thing?
Tom Baigrie is chief executive of LifeSearch